Netflix Operations Management Report

NETFLIX OPERATIONS MANAGEMENT REPORT

TABLE OF CONTENTS

Executive Summary.........................................................2

Introduction...................................................................3

Netflix Process Strategy...................................................3

Competitive Climate........................................................5

Competitive Strategy.......................................................7

Inventory Management...................................................10

Supply-Chain Management..............................................11

Management Critique......................................................12

Future Innovation...........................................................14

Conclusion......................................................................16

APPENDIX

Exhibit 1 - Process Flow Diagram.................................................A-1

Exhibit 2 - Video Market Chart.....................................................A-2

Exhibit 3 - House of Quality.........................................................A-3

Exhibit 4 - Graph of the Pareto Principle......................................A-3

Exhibit 5 - Inventory Flow Plan....................................................A-3

Bibliography ................................................................................A-4

Executive Summary

For a company who emerged in the Dot Com Era and adapted to the virtual world through technology, the CFO Reed Hastings definitely found his niche in the competitive market for DVD rentals. 5.7 million customers receive the luxury of convenience of a subscription service with a personalized recommendation system, an extensive collection of titles, usual one day shipping, an interactive internet interface, detailed movie plot descriptions, and pre-paid envelopes to return the movies. Though being the innovator of this home delivery for entertainment, Blockbuster and Amazon.com compete for Netflix's market share. Netflix is one step ahead of the game by implementing a unique differentiating marketing tool, "No Late Fees." Vital to their success, Nelflix uses a sophisticated software system made specifically to efficiently deliver to subscribers individual title requests within 1-business day. With keeping its costs down, Netflix does not anticipate downsizing, instead it is out to reach higher demands of consumers by having a future innovation of having consumers the ability to download movies. Continuing with low costs, Netflix creates mutually beneficial relationships with other entertainment industries which minimize inventory risks and providing them subscribers for niche titles and programs. These will help their market share grow to the anticipated 20 million by 2020.

Introduction

Many companies introduced during the growth period of the Dot-com Era have long gone without a second thought. However, Netflix is one success story of an ecommerce company that effectively utilized technology to become the world's largest online DVD rental service. Netflix is known is the innovator for the mail-based delivery service for renting DVDs. Founded by Reed Hastings in 1997, the original concept was based as an online version of a more traditional pay per rental model. But the CEO Hastings had personally experienced frustration with late fees. Once when returning a single movie, he was forced to pay a $40 late fee and realized that he was not only one who had displeasure with such large charges. He launched the monthly subscription service in 1999 and began Netflix #1 differentiating marketing tool, "No Late Fees." Today, over five million families now have Netflix accounts, and they can access to over 65,000 titles.

Netflix Process Strategy

Netflix offers an online subscription DVD rental service to customers for a monthly fee. Through the website, netflix.com, subscribers may log into their account and browse all of the 65,000 available titles as well titles that have not yet been released to DVD. The website provides detailed information about all movies including plot description, ratings, and actor/director information. The customer chooses which movies they want to see by adding it to their "queue" of which they are allowed up to 500 ranked choices. There are 8 subscription choices which vary the amount of DVDs the subscriber may keep at one time. The top choices are mailed to the subscriber through the US postal service and usually arrive within 1 business day. Every time a movie is mailed or received by Netflix, an email notification is sent to the customer. Each of the movies comes with a pre-paid return envelope so the customer need only drop the movie in the mailbox once they are finished viewing it. Once the selection has arrived back to the Netflix distribution center, the very next DVD on the queue is mailed out. This service allows for its customers to rent as many film's per month as they can watch and return while having the maximum number of DVDs in there possession at one time. Once the customer has returned the movie, the Netflix website will request the subscriber to rank the viewed movie out of 5 stars. The record of individual preference is logged into a database system that uses proprietary algorithms to personalize movie recommendations. This process of recommendation is vital in the Netflix personalized service model and will be discussed more in the competitive strategy section of this report. If there are problems with the arrival of the DVD or the DVD itself, Netflix has an online claims department that responds to the situation with urgency. Refer to Exhibit-1 for the Netflix process flow diagram is from subscription to

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